Complainant Symon appeals from an order of an Administrative Law Judge
("ALJ") dismissing the majority of her reparations claims. The
ALJ found that complainant had failed to prove her allegations of
misrepresentation, improper order execution, churning, and all but one
instance of unauthorized trading. The Judge awarded Symon $15,633.80 in
damages on a single transaction he found had been executed without proper
authority. On appeal, complainant challenges all aspects of the ALJ's
decision denying her claims. Respondent Monago opposes the appeal and
requests that the Commission affirm the initial decision. Respondents
Star Commodities ("Star") and Gary Fullet did not file
answering briefs.

BACKGROUND

On June 21, 1995, complainant filed this reparations action pursuant to
Section 14 of the Commodity Exchange Act ("CEA"), 7 U.S.C.
§ 18 (1994), against her broker,
Jeffrey Monago, his supervisor, Gary Fullet, and their employer, Star
Commodities.(1) Star Commodities was
registered with the Commission as an introducing broker ("IB")
from July 1991 through October 1996, and was guaranteed by Linnco Futures
Group, a registered futures commission merchant ("FCM").(2) Her complaint alleges unauthorized trading,
churning, misrepresentation, and improper order execution. According to
Symon, respondent Monago first contacted her in September 1994 to solicit
her to open a futures account. At the time, Symon had maintained an
account at Lind-Waldock for five months, her first experience in trading
futures. Symon rejected Monago's overtures and continued trading
through Lind-Waldock. Symon alleges that Monago contacted her again in
December 1994 and persuaded her to open a non-discretionary futures
trading account with Star. Symon's account statements show that she
invested $70,000 in late December 1994 and another $50,000 in January
1995. Symon, who was 64 at the time, drew on her retirement funds to
trade futures.

Her account was traded actively for the next four months and closed with
a small debit balance in May 1995. More than 150 trades were executed
during that time, and Symon alleges that a substantial portion of these
trades were either unauthorized or intentionally designed to make her
lose money.

About six trades account for most of her losses. Two large, losing trades
occurred within the first few months of trading, so that by February 4,
1995, Symon's initial account equity had been halved to $60,000.
Symon's prose complaint describes a series of alleged
incidents occurring over the life of her account in which Monago
variously refused to follow specific instructions regarding particular
trades, advised her badly, entered trades without her authority, refused
to execute orders she asked him to place, or otherwise abused his role as
her account executive. Symon submitted account statements with her
complaint and challenges almost every losing trade.

Symon also alleges that, as her account incurred losses, Monago
repeatedly made promises to make her whole. For example, Symon claims
that "[w]hen I told him I wanted him to liquidate everything and
send me what was left he'd keep telling me that he'll make it up
even if he has to dig ditches and that he'll send me $60,000, but I
mustn't tell anyone, etc. which he has been promising me since
February 4th." (Compl. at 5.)

All respondents filed separate answers to the complaint. Star asserted in
its answer that Symon made false and misleading statements in her
complaint and that she was simply unhappy with her losses. Star contended
that Symon controlled the trading in her account and that no trades were
executed without her consent. In support of its denial of Symon's
unauthorized trading claim, Star submitted with its answer telephone logs
showing frequent conversations between Monago and Symon. These records
indicate that Symon and Monago often spoke between ten and thirty times a
day. Both Monago and Fullet also filed answers describing Symon's
allegations as "grossly inaccurate."

The ALJ then opened the discovery period. In her answers to
respondents' interrogatories, Symon stated that Monago made false
promises to reimburse her for losses. She stated that Monago promised to
visit her in New York, bring her $50,000 or $60,000, and build up her
account to its original size. (Complainant's Answers to Written
Questions at 5.) In addition, she claims that Monago made collect phone
calls to her away from Star's office and told her he made these calls
because the call would be recorded if he telephoned from the office.
(Answers to Written Questions at 6.) Symon attempted no discovery during
the time allowed.(3)

On February 23, 1996, the ALJ ordered the parties to submit order tickets
for Symon's account and to file a report on the number of executed
day trades and the amount of commissions charged. Star complied with this
request on March 19, 1996.

The ALJ conducted a three-hour hearing in New York on April 2, 1996, at
which complainant, Monago, and Fullet appeared prose. Star
was represented by its president, Rita M. Juhlin, a non-lawyer. Symon
testified and was cross-examined by respondents. In her direct testimony,
Symon began by describing the large losses she incurred soon after her
account began trading, saying that respondents "reduced me within
weeks. They reduced my 120 [thousand dollars] to 60, maybe 40. [I]t's
in the [account] statements here, just within weeks." (Tr. at
11-12.)

The ALJ then raised the allegations in Symon's pleadings to the
effect that respondents made certain promises to her and asked why she
continued trading in the face of mounting losses. She said that, after
she lost the first $60,000 of her account equity, Monago began promising
to reimburse her. (Tr. at 12-16.) She testified that "[h]e said you
must come to Long Island. He wants to come to Long Island. He wants to
meet me. He wants to give me this money, but I must keep it a
secret." (Tr. at 17.)(4) The ALJ then
asked complainant about "[a]ny other representations that Mr. Monago
made to you to cause you to keep trading," but she was unable to
remember any. (Tr. at 19.)

The ALJ next asked complainant whether she or Monago chose the trades for
her account and whether any trades were entered without her prior
consent. She testified that she generally followed his suggestions and
she also discussed with him trading recommendations from a futures
newsletter to which she subscribed. She also testified that
"some" trades were executed without her prior knowledge and
consent, explaining that "[t]here's some silver in January
that--too many silvers. Then there were some silvers in April. And there
was one instance where he covered six contracts . . . . [H]e had me cover
these contracts at the real bottom--he would--so that the loss would be
and not in addition to the three of them. Was it twelve? I don't
remember if it was six, or twelve, or three, and six." (Tr. at 21.)

When cross-examined by Monago about unauthorized trading, Symon
reiterated that on one occasion six silver contracts were traded for her
account though she had ordered only three and that on another occasion
Fullet purchased 20 silver contracts though she had ordered ten. (Tr. at
39-40, 41-42.) When Monago asked her generally to discuss her
misrepresentation claim, she responded by saying he had given her bad
trading advice. (Tr. at 40-41.)

Juhlin asked Symon why she had never complained to Monago's
supervisors about being controlled by him. Symon said that she had
complained to Monago about the results of his trading recommendations.
(Tr. at 49-50.) Juhlin introduced into evidence Star telephone bills
showing calls between Monago and Symon, along with transcripts of
telephone conversations between them taped in the ordinary course of
business by Star.(5) During questioning by
the ALJ, Fullet, and Monago, Symon did not deny that she and Monago spoke
frequently.

When Monago testified, the ALJ questioned him extensively about
Star's system for entering and clearing customer orders. The ALJ
stated that the high volume of short-term trading in Symon's account
created a situation where unlawful allocation of trades might take place
undetected. Monago denied that such allocations had taken place. Monago
also testified that Symon initiated most of her own trades based on
newsletter recommendations. (Tr. at 75.) Under questioning by Juhlin,
Monago denied ever promising Symon money or trading her account without
her knowledge. (Tr. at 73.)

Fullet testified that he and Monago sat near each other and he therefore
was aware of the "constant communication" between Monago and
Symon and that "at no time was there ever a situation where I was
notified as a branch manager of any compliance issues" until May,
just before trading ceased. (Tr. at 87.) Fullet also testified that,
after Symon lost half her account equity, he suggested that she stop
trading and she decided to continue. (Tr. at 88.).

After all witnesses had testified, the ALJ recalled Symon to afford her
an opportunity to expand her earlier direct testimony. During
re-cross-examination by Fullet, Symon was asked why she had her account
statements mailed to her seasonal home in Pennsylvania, although she
lived most of the time in New York. She responded that "I expected
to make a what is it I think, a killing, so then I thought I was going to
save on taxes in Pennsylvania, filing a Pennsylvania address . . .
." (Tr. at 98-99.)

Monago, on re-cross-examination, asked Symon about specific trades that
she alleged in her complaint were unauthorized. Using her handwritten
contemporaneous notes, he then sought to show that she had recorded the
trades at the time they were entered. (Seegenerally Tr. at
105-14.)

On June 25, 1996, the ALJ issued an initial decision dismissing the bulk
of Symon's claims. However, Symon prevailed on the claim that ten
silver contracts were purchased without authorization on May 5,
1995.(6) The ALJ did not make findings as
to authority for the remainder of the trades Symon alleged had been
executed without her permission. Instead, the ALJ proceeded immediately
to the affirmative defense of ratification, concluding that even if these
trades had been unauthorized, Symon adopted the trades as her own, and
thus ratified them, by failing to protest at the first reasonable
opportunity. Indeed, the ALJ found that, even when Symon did complain to
Monago about particular trades, she eventually adopted the trades
"in the hopes of making a profit." (Initial Decision at 10.)

As to Symon's claim of misrepresentation, the ALJ credited her
testimony and found that Monago had made false and improper guarantees of
reimbursement after her account lost half its equity. For example, the
ALJ found that Monago promised to bring Symon $50,000 if she would meet
him in Long Island and to "dig ditches," if necessary, in order
to repay her. However, the ALJ ruled that Symon did not remain in the
market in reliance on Monago's misrepresentations and thus failed to
prove that they proximately caused her damages. (Initial Decision at 15.)

The ALJ found that Symon also failed to prove a claim of churning.
Analyzing this case under the three-prong test established in In re
Paragon Futures Association, [1990-1992 Transfer Binder] Comm. Fut.
L. Rep. (CCH) ¶ 25,266 at 38,847 (CFTC
Apr. 1, 1992), the ALJ found that complainant had failed to satisfy the
second prong of the test, namely, that the trading was excessive in light
of her objectives. In support, the ALJ noted that the content of the
transcripts of telephone conversations between Monago and Symon, as well
as the frequency of those conversations, showed that Symon intended to
engage in frequent trading.

Finally, the ALJ rejected Symon's claim of improper order execution,
explaining that Symon based her claim on "bald allegations, and
introduced no specific evidence to prove her claim." (Initial
Decision at 15.) In addition, he noted that the transcripts of telephone
conversations showed that Monago sometimes persuaded Symon not to enter a
trade that she had requested and held that dissuading a customer from
entering a trade is not a violation of the CEA.(7)

On July 15, 1996, Symon filed a notice of appeal with the Commission,
seeking review of all aspects of the ALJ's decision except the one on
which she prevailed. In her appeal brief, Symon reiterates the arguments
raised in her complaint. Symon further argues that she did lodge
complaints about Monago, that he intentionally tried to confuse her, and
that she believed his "false promises." Respondent Monago
requests that the Commission affirm the initial decision.

DISCUSSION

We turn first to complainant's claim that respondents executed trades
that she did not authorize. We find that there is no reliable basis in
the record to support the ALJ's conclusion that Symon ratified the
trades in question. The Commission has held that an ALJ commits
"clear legal error" by narrowly focusing a ratification
analysis on the timeliness of a customer's protest of an unauthorized
trade. Gilbert v. Refco, Inc., [1990-1992 Transfer Binder] Comm.
Fut. L. Rep. (CCH) ¶ 25,081 at 38,058
(CFTC June 27, 1991). A customer ratifies an unauthorized trade
"only where it is clear from all the circumstances presented that
the intent of the customer was to adopt, as his own and for all time, the
trades executed for his account without authorization." Sherwood
v. Madda Trading Company, [1977-1980 Transfer Binder] Comm. Fut. L.
Rep. (CCH) ¶ 20,728 at 23,020 (CFTC
Jan. 5, 1979). This record reveals no such intent on Symon's part.

When considering the affirmative defense of ratification, the first step
is to examine the customer's knowledge of the agent's wrongdoing
and the legal right to avoid financial responsibility for unauthorized
trades. Gilbert, ¶ 25,081 at
38,058. The record does not establish that, at the time of the allegedly
unauthorized trades, Symon was aware that Star was legally obligated to
remove unauthorized trades from her account without charging her for
accrued losses.

Moreover, the timing of Symon's discovery of the unauthorized
transactions is, at best, ambiguous on this record. The ALJ found that
Symon was not receiving her account statements promptly and did not
receive accurate verbal confirmation of her trades. Symon claims that she
did not read some of the account statements she received until the end of
April, making it unclear at what point she learned of the alleged
wrongdoing. Respondents have presented no evidence to challenge
Symon's claim. In these circumstances, the record does not support
the ALJ's conclusion that respondents have met their burden of
establishing the defense of ratification.

As a result of the ALJ's error in his ratification analysis, he did
not assess Symon's demeanor and credibility as to her claim of
unauthorized trading. Without such a record, we are unable to undertake
denovo review and make any determination as to whether the
alleged unauthorized trades were in fact executed without Symon's
approval.

As noted above, the ALJ found that Monago had made material
misrepresentations to Symon, but found that complainant's own
testimony established that she did not believe the misrepresentations.
The ALJ's analysis amounts to a finding that Symon failed to prove
reliance, a necessary link between a misrepresentation and
complainant's damages. The ALJ's assumptions that Symon did not
believe Monago's false assurances is not supported by the record. In
response to the ALJ 's question, "[y]ou didn't think he
meant it I guess, right," Symon gave the following halting response:
"[h]e was telling me it's not -- I don't know what you call
it, legal or professional. But it's -- he is -- he said it. He said
he was going to see to it that --" (Tr. at 18). Symon also testified
that she continued trading despite mounting losses because Monago
"was telling me we were going to build it up and he actually did
give me a few profits." (Tr. at 18.)

There is significant evidence that Monago actively attempted to persuade
Symon to continue trading by illegally promising to reimburse her losses,
and the ALJ so found. When asked why she did not quit trading despite
mounting losses, Symon answered that there were a few instances where she
tried to quit, but Monago persuaded her to continue. On remand the
parties should be permitted to introduce additional testimony on whether
Symon relied on Monago's false and illegal representations.

We turn now to Symon's claim that Monago churned her account. In the
circumstances established on this record, the weight of the evidence does
not support this claim. A claimant must satisfy three criteria to
establish a claim of churning: (1) the broker controlled the level and
frequency of trading in the account; (2) the overall volume of the
broker's trading was excessive in light of the customer's
objectives; and (3) the broker acted with intent to defraud or in
reckless disregard of the customer's interest. Paragon
Futures, ¶ 25,266 at 38,847.

Symon has not demonstrated that Monago's
trading was excessive in light of her objectives, and the record does not
contain a clearly articulated statement of Symon's trading strategy.
The telephone records indicate that Symon and Monago, on occasion, spoke
between ten and thirty times a day. There were also instances in which
Symon wanted to engage in more trades than Monago was willing to place.
These circumstances suggest that complainant intended to engage in
frequent trading and support the ALJ's conclusion that her volume of
trading was not excessive in light of her objectives.(8) On this basis, we agree with the ALJ's
conclusion that the record does not support a finding that respondents
churned Symon's account.

We next turn to Symon's claim of improper order
execution. The ALJ found that Symon failed to plead or prove this claim
with enough specificity to support a liability finding. However, the
telephone transcripts clearly reveal that Monago, on occasion, tried to
dissuade Symon from placing an order, ignored her request, or simply hung
up the telephone. Monago's failure to place authorized orders as
requested is consistent with his execution of orders without
authorization and demonstrates his refusal to follow his customer's
instructions. We remand for further development of the record on this
aspect of Symon's claim.

Finally, in awarding damages to complainant, the
ALJ stated that Linnco would be liable for the satisfaction of judgment
in the event that respondents failed to pay. Linnco has not been named as
a party to this proceeding. On remand, Symon shall be given the
opportunity to amend her complaint to add Linnco as a respondent.

CONCLUSION

For the foregoing reason, we remand the case for
further proceedings consistent with this opinion.(9) The ALJ shall hold an oral hearing to develop
a record sufficient to make findings on complainant's unauthorized
trading claim, her claim of improper order execution, and her claim of
reliance on Monago's misrepresentations and lulling behavior. We
affirm the judge's liability finding as to the ten unauthorized
silver trades and resulting award of $15,633.80 plus interest and fees.
We also affirm the judge's findings that complainant did not prove
churning.

By the Commission (Chairperson BORN and
Commissioners DIAL, TULL, HOLUM, and SPEARS).

1. Respondent
Star Commodities was headquartered in Minnesota, but Symon traded with
Star through its Chicago office where Star did business as Target
Trading. Monago became registered in 1993 and came to Star in November
1994. Respondent Gary Fullet is a registered associated person who served
as Monago's supervisor and the manager of Star's Chicago office.
Symon claims that Fullet occasionally participated in trading her account
during the relevant time period.

2. Symon failed
to name Linnco as a respondent in her complaint.

3. On March 18,
1996, Symon made a belated discovery request asking respondents to
furnish her with order tickets for approximately 52 trades. Respondent
Star objected to this request as untimely, and the ALJ refused to compel
production.

4. The following
exchange took place between the ALJ and the witness on this point:

ALJ: Well, did you have tea prepared when he got
there, or did he get there?

Symon: Huh.

ALJ: He didn't get there.

Symon: No, I wasn't encouraging him.

ALJ: Did you keep trading with him?

Symon: Yes.

(Tr. at 17-18.)

5. The
transcripts are undated and cannot be easily linked to specific trades in
Symon's account. Moreover, the transcripts are incomplete and only
reflect some of the conversations between Symon and Monago.

6. The ALJ found
that Symon did not authorize that trade and that Monago's explanation
that he had merely made a mistake by "push[ing] the wrong buy/sell
button" was false and deceptive. Regarding respondents'
affirmative defense of ratification, the ALJ found that Symon did not
learn of the unauthorized trade until the trade confirmation Star had
mailed to her in Pennsylvania was forwarded to her in New York . The
judge found that, after complainant discovered the unauthorized
execution, she promptly protested to Monago and, shortly thereafter,
mailed a written complaint to Star's president. On this basis, the
ALJ concluded that ratification had not been established and awarded
Symon her $15,633.80 loss on this trade. The ALJ further concluded that
in the event that respondents fail to satisfy the judgment, Linnco
Futures Group, as the guarantor of Star Commodities, would become liable
for Symon's loss.

7. Complainant
also alleged improper activity with regard to "Off-Exchange
Transactions." The ALJ found, however, that the record showed no
evidence that complainant engaged in any off-exchange
transactions.

8. The volume
also is consistent with her level of trading in her account at
Lind-Waldock, records for which were introduced by respondents.

9. Complainant
has now retained counsel and submitted a motion to reopen the record so
that she can subpoena exchange records relating to her trading.
Complainant's request is in effect a motion to seek evidence from
non-parties, see Commission Rule § 12.31, 17 C.F.R. §
12.31 (1997), and the ALJ should consider the motion on remand.